Mexico's Banks Unlikely To See Earnings Hit By Limits On Fees
July 26 2010 - 7:44PM
Dow Jones News
Mexico's banks aren't expected to see much of an impact on their
earnings as a result of new restrictions on commissions and fees
that will take effect in the coming months.
"From our conversations with industry sources in Mexico,
including [No. 3 bank] Banorte, the impact from the new measures on
banks' earnings is reportedly limited," Barclays Capital analyst
Robert Attuch said in a note.
Under rules that are set to take effect by January 2011, banks
and non-bank finance companies will no longer be able to charge
their own clients fees for withdrawing cash, checking their account
balances, as well as making deposits and loan payments at ATMs and
branches. Lenders will also be limited in the fees they can charge
for late payments on loans and account overdrafts, according to
regulations published in the Official Diary on Monday.
"We think Bank of Mexico's measures go more in the direction of
increasing transparency of banking fees, rather than disrupting
banking fees' pricing structure, something similar to what happened
in Brazil, back in 2007-08, where the impact on banks'
profitability has been well contained," Attuch wrote.
Mexico is a major profit center for foreign banks like Banco
Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC), Citigroup Inc. (C)
and Banco Santander SA (STD), which control most of the country's
biggest financial institutions.
The Association of Mexican banks said in a press release Monday
that it will study the changes its members will have to make to
their operating systems to comply with the new regulations.
Commissions have fallen sharply since 2004 thanks to economies of
scale and competition, the association said.
The Bank Of Mexico, under Governor Agustin Carstens who took
office on Jan. 1, is extending the restrictions on bank fees that
his predecessor Guillermo Ortiz imposed last year.
The central bank was granted even broader powers to regulate
commissions and interest rates under legislation approved by
Congress earlier this year in response to the public's perception
that banks are gouging consumers through a host of fees and
commissions.
Carstens said Monday in an interview with Radio Formula that
income from commissions and fees currently represent about 30% of
the banking industry's total revenues.
The measures seek to strike a balance "between commissions that
cover costs and provide an adequate return for the banks but aren't
too onerous for consumers," he said.
"What we are looking for above all is that there aren't
disproportionate charges and that banks increasingly have more
incentives to look for revenue by extending credit... which is
really the objective of this reform," he added.
Moody's senior credit officer David Olivares said that the Bank
of Mexico's latest measures are part of a broad push by regulators
to roll back the large number of fees and commissions that banks
put in place following the 1995 financial crisis to compensate for
a downturn in lending.
"I think they are healthy for the industry because they boost
transparency. The impact they might have on the profitability [of
individual banks] is limited," he said.
Mexico's leading banks emerged from last year's deep recession
both profitable and well capitalized. Although lending started to
pick up in May and June, banks are still reluctant to extend credit
amid high unemployment and anemic private sector investment.
Total loan balances rose to 2.015 trillion pesos ($157.9
billion) at the end of last month, an 8.5% increase from a year ago
and up 0.6% from the end of May, according to preliminary data
published last week by banking and securities regulator CNBV.
The Association of Mexican banks has forecast double-digit loan
growth this year as lending recovers along with the economy, which
is widely expected to grow between 4% and 5% in 2010.
-By Ken Parks, Dow Jones Newswires; 52-55-5980-5177,
ken.parks@dowjones.com
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